Atlassian’s (NASDAQ:TEAM) flagship product Jira has grown into a tool favoured by tech developers. Word of mouth marketing has helped make the product viral, which has been reflected in the company’s stratospheric growth rates.
Another aspect of Atlassian’s business is the relatively low investment in selling, while focussing on research and development. On the face of it, the company’s approach comes across as remarkable - no salesperson model, only delivering incremental value through innovations. However, on digging deeper, the company may be playing with fire.
As per the company’s filings, Atlassian has internal tools (Atlassian Engagement Engine) to profile and analyse customer behaviour to help promote additional products. Arguably, much of the ‘higher than normal’ research and development (R&D) spending could be going in refining this user profile engine which begets the following questions:
• Is Atlassian’s sales and marketing (S&M) expense then truly lower than that of enterprise software companies with much larger salesforces?
• Could the company also come in the line of fire of potential privacy violations?
While most of Atlassian’s S&M spending is marketing focussed, the company does not break down its R&D expense across different activities. However, on the privacy front, the company appears to be aware of a potential conflict:
“Given the breadth and depth of changes in data protection obligations, complying with GDPR’s requirements requires time, resources and a review of our technology and systems currently in use against GDPR’s requirements. We currently rely on the EU-U.S. Privacy Shield and standard contractual clauses approved by the European Commission as our legal bases for data transfers from Europe.” (Source: 20F – 2018)
In the not too distant memory, the likes of Google and Facebook have faced significant financial and operating restrictions due to their perceived lack of respect for user privacy. Thus, is not a stretch to imagine what could happen to Atlassian's stock, should the company fall on the wrong side of privacy concerns.
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This contribution is for informational purpose and does not constitute investment advice nor is it an offer to sell or buy, nor is it a recommendation for any security.
Anuj D.
